Renewable projects to bid for �300m in subsidies

By Edd Gent

Published Thursday, October 2, 2014

Up to £300m in subsidies will be available to renewable electricity projects as the ‘contracts for difference’ scheme launches this autumn.

The level of subsidies on offer under the new regime, which guarantees a set price for electricity from low-carbon projects to give investors certainty on their returns, is an increase of £95m from the pot outlined in July, the Department of Energy said.

Today's announcement on contracts for difference split the budget for auctions in which projects can bid for subsidies into two separate schemes, one for established technologies and one for newer types of renewables.

Established technologies, such as onshore wind farms and large-scale solar, will compete for up to £65m in support in this year's annual auction, said Decc, while less established technologies including offshore wind and marine power schemes will have a share of up to £235m.

According to officials the contracts for difference regime will deliver new low-carbon electricity generation more cheaply than the old subsidies regime, with households, who foot the bill, paying on average £41 a year less up to 2030 than without the changes.

Energy Secretary Ed Davey said: "We are transforming the UK's energy sector, dealing with a legacy of underinvestment to build a new generation of clean, secure power supplies that reduce our reliance on volatile foreign markets.

"Average annual investment in renewables has doubled since 2010 – with a record-breaking £8bn worth in 2013. By making projects compete for support, we're making sure that consumers get the best possible deal as well as a secure and clean power sector."

The budget for next year's auction will be confirmed next year, but it has already been indicated that £50m will be available for established technologies for the next round of subsidies.

But large-scale solar farms have seen their support slashed, with subsidies under the existing ‘renewables obligation’ ending next April, two years before they are curtailed for other technologies.

The Department of Energy (Decc) said the move was necessary as large-scale solar developments – which have caused some controversy because of their impact on the countryside – were growing faster than expected and would exceed the budget for subsidies by £40m in the next two years.

But the industry has accused Decc of singling out solar farms for unfair treatment and threatening jobs and investment in renewables by creating new uncertainty with policy changes.

Solar Trade Association (STA) chief executive Paul Barwell said: "Solar has been the rising star in the coalition's renewable energy programme and has been championed recently by the Prime Minister at the UN and by ministers at conference.

"Why is the UK government putting this industry's incredible achievements on solar power at risk? To curtail its growth now is just perverse and unjustified on budgetary grounds – solar has only consumed around 1 per cent of the renewables obligation budget.

"This is not a good outcome for consumers either. Why remove support for solar power when it could be the first low-carbon power source to become subsidy-free by the end of this decade?”

The government has already awarded £16.6bn worth of contracts for eight renewables projects without competition, prompting concerns from the National Audit Office that it did not provide the best value for consumers.

The contracts were awarded to develop five offshore wind farms, for two coal plants to convert to burning biomass and for one new biomass combined heat and power plant, in a bid by the government to ensure there was no investment delay.

Officials estimate that the £235m auction pot announced today for newer technologies would pay for 15-year contracts for 700 to 800MW of offshore wind capacity – which could be the equivalent of just one offshore wind farm.

Alongside the budget for the contracts for difference, the government published its response to a consultation on changes to the existing subsidies regime for solar electricity. While the scheme will be closed for large-scale solar arrays of more than 5MW from April 2015, it will remain open for smaller solar farms until 2017.

There will also be a grace period to protect large projects where significant financial investment was made on or before 13 May 2014, the date when the consultation into the changes was published, Decc said.

The move by the government comes days after the International Energy Agency (IEA) revealed that solar power could become the largest global source of electricity by 2050, but would require stable and clear support from governments.